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better lifestyle than that same amount in San Francisco, where housing costs and other costs of living are very high. The Pew Research Center’s income calculator enables an exploration of income by class, race, gender and geography. Check it out!
IV. What is Wealth? Income ≠ Wealth. Here’s an important financial literacy concept: Income and wealth are not the same things. Income is based on what you earn. Wealth is a broader and much more complex concept. It is the sum of the values of all of the things you own (such as a home, bank and retirement accounts, and investments like stocks or bonds) minus your debt . Wealth is also referred to as net worth . Wealth (net worth) is built
Total Assets - Debt Net Worth
by transforming income into the ownership of things that hold or increase their value over time . The distinctions between income and wealth are important for you to understand because different financial literacy concepts, terms, skills, and strategies apply to each. The Importance of Money Management. Earning a high income does not necessarily mean you are or will be wealthy. Conversely, earning a low income does not necessarily mean you will not be able to build wealth. Obviously, earning a high income makes it easier to save money and make investments. However, someone with a relatively low income who has good money management skills can become wealthier than someone with a high income who doesn’t manage their money well. People who become wealthy understand the importance of good financial management. People who don’t have money management skills often work their whole lives and never build wealth or improve their financial condition. Many people think money management is only for rich people. That is wrong. Everyone needs to have money management skills because they are key to building wealth and financial security at every income level. PRODUCT PREVIEW The Importance of Wealth. Building wealth is ultra-important because wealth provides long term financial security and stability . It provides access to a better education, better medical care, housing and other things that affect your quality of life. Unless you build wealth, you will always be dependent on income. That means you may always be just one disruption, such as a job loss or illness, away from having no money and no means of support. If you want to be financially secure one day, rather than living paycheck to paycheck, you must build wealth. Topics and concepts related to building wealth are covered in Unit 2. Wealth-building as a Job. Building wealth takes effort and lots of discipline. After all it’s a natural human tendency to want to spend the money you earn on fun and luxury. To be happy and secure in the long run, however, you must fight the urge for immediate material gratification . Once you are earning an income, you must actively manage your money, always saving and investing a portion for your future. You must develop an awareness of and control over your financial habits. Think of wealth-building as your future second job . Just like preparing for an income-earning career, you must prepare for your job as a wealth builder. Both require education, knowledge, a specific set of skills, and a strategy. In fact, you are already engaged in one essential future wealth-building activity: getting educated! Building wealth starts with getting a good education. Wealth = Health Wealthy Americans live up to six years longer than poor Americans. This is called the longevity gap — and it's widening! Fin Lit Trivia Fin Lit Trivia Fin
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THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY
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